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Sony's Blues Caused By Blu-ray

Remember how I said that Sony was scarred by the video battle of the 1980’s. In its determination to win the next big recorded media confrontation Sony was perhaps guilty of spending too much time and effort in beating Toshiba in the next generation of DVD when Blu-Ray triumphed over HD DVD.

In 2007, Sony’s Blu-ray technology was being squeezed in the battle with Toshiba’s HDDVD. It was a retrospective on the Betamax v VHS battle all over again. Large volume retailers in the US market such as Wal-Mart simply stated that they wanted to offer a product that consumers would be confident about buying as they sought to couple new players to their HD TV’s. To swing the market in their favour Toshiba and Sony each needed Hollywood studios to pick a format on which to release their vast back library of movies.

First blood was drawn by Toshiba and HDDVD as Paramount announced it was choosing HDDVD ahead of Blu-ray. It was suggested that Toshiba had paid Paramount and its DreamWorks unit $150m so as to land the commitment. Immediately Toshiba offered HD-DVD players for $99 so as to press home the advantage by gaining lead in player sales.

If one lesson was learned from this chastening experience it was that many units within Sony had operated as islands of excellence and hardly, if ever cooperated with other units in the group. However, PlayStation units could play Blu-ray discs, so suddenly a new dimension to the game was recognised and seized as Sony started to provide original movies with PlayStation games.

This allowed Sony to add it dominance of Blu-ray player sales in japan to the global sales of PlayStation 3 (PS3) to show that in total sales of disc playing units it was ahead of Toshiba by 1.8m. This was a vital statistic to convince other studios that Blu-ray was not just an updated version of Betamax.

Sony racked up a media spend in excess of $60m to promote PS3 in an attempt to keep their format in the Hollywood executives eye. It paid off as Warner Brothers announced in January 2008 that it was going with Blu-ray as its studio standard and in February Wal-Mart agreed to sell Blu-ray machines exclusively. By mid-February, Toshiba announced it was going to cease its HD-DVD business.

The Blu-Ray did win that battle, however, has it lost the war? One has to question what longevity it will have. The world is already starting to look to stream high definition movies on demand into a home. If by a version of “peer to peer” file sharing one can order up a Hi-Def feed of the latest out of cinema movies, why does one need to have a physical copy at home taking up space.

One could argue that the Blu-Ray could be a great way for corporation to store data, but here Blu-Ray has been superseded in storage capacity by the “Fluorescent Multilayer Disc” (FMD).

A standard single layer Blu-Ray disc has a capacity of 25GB, (1GB = 109).

One can get Blu-Ray’s with 4 layers so the capacity is 100GB or 1011.

The FMD has the capacity of 1TB = 1012

The US Library of Congress Web Capture team has stated that at the end of April 2011, the library has collected about 235 TB of data and that it adds about 5 terabytes per month. Clearly the digitalisation of such a data source will not be handed over to Blu-ray. MFD would be the most convenient transportable medium.

So the one key diamond in the Sony family collection may well prove to be just a cubic zirconia. It seems as though this once mighty company was caught napping on 3 key fronts.

Not quick enough to change TV design.

Blindsided on the design front by Apple.

Too self-satisfied by Blu-ray when it will be quickly surpassed.

Is there anything in the new strategy?

The plans announced by Hirai will be judged in the fullness of time; however, at first glance it is hard to deduce anything logical that will deliver a rapid transformation in raising the operating profit margin. There are too many words in the corporate message relating to grand ideas of boosting digital imagery, games and mobile businesses; turning the TV unit around; expanding in emerging markets; creating new businesses and accelerating innovation.

Hirai wants Sony to deliver an operating margin of 5% + and a return on equity (ROE) of 10%. That is virtually a doubling of margin and a complete reversal of ROE from the current picture. This has to be achieved by year ending March 2015. However, is Sony ready to launch 3D TV without glasses? Where does it stand in the realm of holographic TV? The plans being announced at HQ seem geared to today and tomorrows technology. Sony has got to be thinking 5 years ahead if it is to create the wow factor once again.

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